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Legislative Memo

Ken Pokalsky
Vice President of Government Affairs
T 518.465.7517 x205
www.bcnys.org

BILL:

S.2021 (Schneiderman)

Support

SUBJECT:

Increase Personal Income Tax Rate

 

DATE:

February 19, 2009

 

The Business Council strongly opposes this legislation that intends to impose a permanent $6 billion increase in the state's personal income tax levy.

Impact - This proposal, often referred to as the “millionaire's tax,” would substantially increase rates on New York taxpayers with taxable income over $250,000, including married couples filing joint returns.

The Department of Tax and Finance has estimated that as many as 200,000 mostly small businesses that pay personal income taxes as “subchapter S” corporations could also be impacted by PIT rate changes.

If adopted, this bill would leave New York with the second highest maximum income tax rate of any state in the nation, at 10.3 percent, and with a top rate well above those in neighboring states – Pennsylvania at 3.07 percent, Connecticut at 5 percent, Massachusetts at 5.3 percent, New Jersey at 8.97 percent- and 60 percent higher than the median top rate of all states.
In short, this proposal would make New York's already uncompetitive tax climate even less so.

Address Excess Spending - We recognize that state revenues are down due to the national recession. The Executive Budget proposal for FY 2010 projected a 5 percent, or $1.8 billion, year to year decline in net personal income taxes. Even so, next year's PIT revenues would still be $4 billion, or 12 percent, higher than just four years ago.

However, The Business Council has repeatedly stressed that the real cause of our current and projected budget gaps is our excessively high spending.

Consider the evidence. From Fiscal 2000 to the end of Fiscal 2008, the state funds-supported budget grew by 62 percent, from $50.6 billion to $81.7 billion -nearly 2.5 times the inflation rate (about 24 percent) over the same period. If the budget had grown at merely double the inflation rate, the FY 2008 budget would have been $4 billion less, $77.7 billion, versus $81.7 billion, and New York would have entered the current fiscal year facing a manageable downturn in revenues, not a massive, $15 billion, two year gap between our rapidly increasing spending trend line and declining revenues.

Even so, the Executive Budget contains too few major reforms and modest overall spending constraint, while the state's massive Medicaid budget grows by another 4.5 percent.

These numbers clearly illustrate the need to reduce the size of the state budget, not just reduce or limit the rate of growth.

To balance the state's budget over the long term, we first need to bring spending under control, and within our means.

NY's Progressive PIT - Despite arguments to the contrary, New York's personal income tax is progressive. The lowest fifth of PIT filers in terms of income pay no state or local income tax at all, and in fact receive a state refund under the Earned Income Tax Credit – a provision that has been supported by The Business Council. The effective tax rate on New Yorkers increases significantly as you move from the lowest income earners to the highest. For example, the effective state income tax rate on the highest one percent of earners is more than seven times that on the second quintile of taxpayers, and more than double that on the third quintile of taxpayers – categories of taxpayers who could be fairly defined as the “middle class”. In other words, taxpayers with progressively higher rates of income already pay a progressively higher share of their income in state personal income taxes. High income earners pay a significantly higher share of their income in state income taxes than does the middle class. Likewise, the top 4 percent of taxpayers in New York pay 55 percent of all personal income taxes. The top 25 percent of taxpayers account for more than 96 percent of all personal income tax liability.

Conclusion - The Business Council opposes any permanent increase in any of the state's broad-based taxes during an economic recession because it is bad economic policy, and a bad message to send to current business and investors considering projects in New York State.

Any revenue adjustments should be designed to address cyclical downturns in income, rather than impose a permanent increase in the state's tax burden. We note that, in stark contrast to S.2021, the state imposed temporary, three year surcharges on both the personal income tax and the state sales tax in response to the post-September 11th recession – surcharges that expired as state revenues grew with the national economic recovery.

Finally, we strongly oppose any temporary increase in, or surcharge on, any of our broad based taxes without a prior commitment to significant spending restraint and other fiscal reforms to provide long term stability, and affordability, to the state's budget. As stressed above, New York's spending has increased to unsustainable levels; dealing with our current and future budget gaps requires significant adjustments on the spending side before we commit to new, burdensome taxes and fees.

For these reasons, The Business Council opposes approval of S.2021.